Energy and National Security

Article excerpt

Is "Energy Security" A Meaningful Concept?

Phil Sharp, long-time chairman of the House Energy Subcommittee, vigorously argued that the best energy security policy is to have lots of people producing and lots of people distributing the energy that the United States needs. This minimizes the risk of a disruption at any one point in the production/distribution chain. In this context, he said that the one enduring energy security question that requires diplomacy, military presence, and the willingness to use force is the concentration of oil reserves, production, and surge capacity in the Middle East.

Backing up Sharp, long-time Amoco vice-president John Lyman argued that U.S. energy security is best maintained by ensuring that the United States is, and is perceived to be, fully supportive of free trade and of the use of market forces on a global scale.

Vito Stagliano of Resources for the Future argued that energy security is an empty concept used to perpetuate bad, self-serving public policy. He recounted the history of dramatizing energy issues and using energy as a reason for dubious public policy, in which category he included expenditures in excess of $100 billion between 1973 and 1992. The most important contribution to U.S. energy security during that period came not from any of the projects financed by this spending but instead by the de facto death of OPEC. The death of OPEC, he argued, came from the 1981 U.S. government decision to end price controls and reduce regulations on energy output. The 1981 actions spurred the growth of spot and futures markets that disrupted the ability of any government, including those of the OPEC countries, to control oil prices.

John Riggs, Principal Deputy Assistant Secretary of the Department of Energy, replied that energy security reminded him of Mark Twain's comment, "The music of Wagner is better than it sounds." That is, while the 1973 and 1980 oil shocks led to some inflated rhetoric and while energy security has been used as a justification for some pork barrel projects, the fact is that the oil shocks did inflict significant economic harm on the United States. True, much (although certainly not all) of this harm arose because of the imposition of price controls, but that should not be used to minimize the effect that the oil shocks had on the economy and therefore the potential effects that a future shock could have.

Mr. Riggs also argued that dependence on energy imports can reduce U.S. foreign policy options. As an example, he asked if the United States would have opted to bomb Libya in 1986 had world oil markets been tight? He suggested that the United States might not have taken such a strong stance against Libyan terrorism had the United States been concerned it could provoke another oil price shock.

Supply Disruptions

The participants agreed that the world oil supply system has changed since the oil crises of the 1970s and 1980s. The system now has much greater flexibility, thanks to a much larger role for market forces. On the other hand, Mr. Riggs cautioned against exaggerating the role of market forces. Since Saudi Arabia can produce oil at two to three dollars per barrel and the world price is seventeen to eighteen dollars, something other than market forces seems to be at work.

After noting that regulations and price controls that encumbered oil markets in the past have now been largely eliminated, Hill Huntington of Stanford University's Energy Modelling Forum asked, how well and how quickly would markets work to adjust to a supply shock, and if they did not work quickly enough, would politicians step in with price controls or other such measures. He argued that macroeconomic models show that a doubling of oil prices would cut U.S. GDP by about 5 percent after a period of one and a half years. He argued that in the face of such a considerable price, the U.S. government was likely to adopt offsetting policies. …